FIN 571 Week 3 DQ 3 NEW

Question 1

FIN 571 Week 3 DQ 3 NEW

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Short term funding strategy involves various sources of short-term financing such as:

Accounts payable (trade credit), bank loans, and commercial paper are common sources of short-term financing.

Accounts payable constituted about 35 percent of total current liabilities for all publicly traded manufacturing firms. ◾The buyer needs to figure out whether it makes financial sense to pay early and take advantage of the discount or to wait and pay in full when the account is due.

Short-term bank loans accounted for about 20 percent of total current liabilities for all publicly traded manufacturing firms. ◾An informal line of credit is a verbal agreement between the firm and the bank, allowing the firm to borrow up to an agreed-upon upper limit.

In exchange for providing the line of credit, a bank may require that the firm holds acompensating balance with them.

What are some other sources of short-term financing used with this strategy?

Answer 1

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